Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Littelfuse’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.4% annually. Littelfuse isn’t alone in its struggles as the Electronic Components industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Electronics and Automotive, which are 53.6% and 30.2% of revenue. Over the last two years, Littelfuse’s Electronics revenue (fuses and switches) averaged 9% year-on-year declines while its Automotive revenue (trucks, commercial machinery, marine) was flat.

This quarter, Littelfuse’s revenue fell 6.5% year on year to $567.4 million but beat Wall Street’s estimates by 1.7%. Management is currently guiding for a 1.6% year-on-year decline next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.4% over the next 12 months. Although this projection illustrates the market thinks its newer products and services will fuel better performance, it is still below average for the sector.

Today’s young investors likely haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Operating Margin

Littelfuse has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Littelfuse’s annual operating margin rose by 3.1 percentage points over the last five years, showing its efficiency has improved.

In Q3, Littelfuse generated an operating profit margin of 15.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

 

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Littelfuse’s EPS grew at a weak 2.4% compounded annual growth rate over the last five years, lower than its 7% annualized revenue growth. However, its operating margin actually expanded during this timeframe, telling us that non-fundamental factors affected its ultimate earnings.

We can take a deeper look into Littelfuse’s earnings to better understand the drivers of its performance. A five-year view shows Littelfuse has diluted its shareholders, growing its share count by 1.4%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Littelfuse, its two-year annual EPS declines of 28.8% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Littelfuse reported EPS at $2.71, down from $2.97 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Littelfuse’s full-year EPS of $8.46 to grow by 25.4%.

Key Takeaways from Littelfuse’s Q3 Results

We liked how Littelfuse beat analysts’ revenue, EBITDA, and EPS expectations this quarter. On the other hand, its revenue and EPS guidance for next quarter both fell short of Wall Street’s estimates. Overall, this quarter was solid but the outlook was weak. The stock remained flat at $260.23 immediately after reporting.

Littelfuse put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment.What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.